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Missing from the press release on the Kraft Heinz deal is just how much explicit value Kraft shareholders are getting. It’s an odd structure where Kraft gets 49 per cent of the new company PLUS a one-time dividend of $16.50.
Kraft shares have traded up to more than $80.
Lex has a tricky realtionship with go-go e-retail businesses. Their valuations – that is, the relationship of their stock prices to their profits – imply long-term growth rates inconsistent with the normal competitive pressures in retail. So mostly we make surly comments about them. There is, however, another side of the story. Online retail leadership does seem to persist. So in a recent note about Ocado, the UK grocer, we departed a little from our previous dour tone, and tried to articulate the bull case. Here is our summary:
[sceptics about Ocado's valuation] have failed to accept the core principles of online retail investors. Namely that much more of the market will convert to online; that the leader online, because of economies of scale, will never be overtaken by the also-rans; that margins online will expand beyond those of the traditional competitors; and that the bricks-and-mortar leaders will never become digitally competent. Accept this catechism, and all else follows. It is easy to doubt the four together, but in Ocado’s case, no one of them is obviously wrong, either.
There is a technical problem with the “data warehouse” at FT HQ (we are told) and that makes sending out our subscriber email impossible this week. So we’ve posted it here. Onwards!
Last week Lex kicked around the possibility that BT would spin off or otherwise separate its network division, Openreach. BT’s competitors, such as TalkTalk and Sky, depend on Openreach’s wires. They suggest that BT is (to exaggerate their view slightly) under-investing in the Openreach network and using the monopoly profits from it to subsidize its other businesses. It’s not very clear to Lex that a spin-off would lead to better service. But whether it would or not, Claire Enders of Enders Analysis has pointed out another little problem with the spin-off idea: that BT’s mountainous pension liabilities make it effectively impossible. She writes:
In any spinoff of Openreach, the government would have to consider whether to keep the pension fund obligations with BT, spin them off with Openreach, or split them between the two. The pension fund trustees might have to approve the plan, or at least set conditions for it. Crucially, the Crown Guarantee would also have to be considered.